Why IRFC Share Price is Rising

Following weak global market sentiment after Fitch downgraded the US credit rating; the Indian stock market extended the sell-off on the second day in a row on Thursday this week. The fall was intense and benchmark indices fell over 1%.

However, despite the weakness, Indian Railway Finance Corporation's (IRFC) share price managed to attract buying interest.

IRFC share price hit an intraday high of Rs 44.65 apiece on NSE, logging a near 12.5% rise during yesterday's deals. Continuing the rally, shares of the PSU company hit a new lifetime high today as well.

Here's why this railway stock has been on a roll lately.

Why IRFC share is rising

#1 Latest wagon tender

The uptick in the stock price was a result of the current market speculation swirling around Indian Railways' plans to roll out a substantial Rs 250 bn tender. Its objective is to secure a fleet of 60,000 wagons during the upcoming July to September 2023 quarter.

This is a major procurement order, expected to boost the revenue and profit of IRFC, which finances the purchase of railway assets.

The tender procedure is expected to unfold in two phases. The initial phase will involve the procurement of 50,000 wagons, followed by the subsequent phase, targeting the acquisition of 10,000 wagons.

These wagons will play a pivotal role in transporting diverse goods such as coal, steel, cement, and food grains.

The tender is poised to attract interest from both domestic and international firms, amplifying the competitive landscape.

This procurement endeavour aligns with Indian Railways' strategic blueprint to augment its share in the freight traffic market.

Presently, the railway sector constitutes around 30% of the nation's freight traffic and the government aims to elevate this proportion to 45% by 2030.

This initiative would be advantageous for several companies, including RVNL, Ircon International, JSL, Rites, BHEL, and RailTel.

These entities are anticipated to capitalise on the Rs 250 bn tender as they contribute a spectrum of equipment and designs for wagons.

However, to fulfil the demands of their respective order books, these railway public sector companies need financial backing, which is anticipated to be facilitated through IRFC's line of credit.

#2 Strategic collaboration with RITES

On 28 July 2023, IRFC formally entered into a Memorandum of Understanding (MoU) with RITES.

The primary objective of this MoU is to establish a framework for collaborative efforts to enhance IRFC's involvement in extending financial support to Railway-associated projects. Within the scope of this MoU, RITES will play a pivotal role by extending consultancy and advisory services.

Their expertise will be instrumental in evaluating the financial and technical viability of projects. In tandem, IRFC will leverage its financial capabilities to provide essential support to projects and institutions that share both backward and forward linkages with the railways.

This cooperative endeavour is a concerted push to drive progress within the railway ecosystem. Following the MOU, the shares of the company climbed 9%.

What next?

In the coming years, IRFC is poised to benefit significantly from India's burgeoning railway sector. With substantial investments from the Indian government directed towards the railway domain, the outlook for IRFC appears promising.

The railway ministry has sought the cabinet's approval for a Rs 5.25 trillion investment program during fiscal years 2024-31.

This augmented allocation will provide a renewed impetus to enhance freight movement across the national transportation network.

Recognising the pivotal role of the railway networks, 90% of raw materials are transported via rail. Leveraging this vital artery, the railways have set their sights on a remarkable trajectory.

While they transported 1,210 mt of the total freight basket of 4,700 mt until the close of 2019, their ambitious plan envisions the loading of 2,024 mt by 2024 from an estimated total freight volume of 6,400 mt.

This dynamic landscape forms a fertile ground for IRFC's growth. The railway sector in India sets to flourish at an impressive compound annual growth rate (CAGR) of 7.5% between 2022 and 2027.

This growth trajectory is set to fuel IRFC's financial prospects, riding on the increasing demand for funding in this expanding sector.

IRFC plans to diversify its financing portfolio in future. This evolution will encompass new dimensions of railway projects, notably dedicated freight corridors, high-speed rail initiatives, and the development of smart railways.

How IRFC shares have performed recently

IRFC shares have given multibagger return over 120% in the past year. Over the month, the company's shares have rallied over 40%.

IRFC touched its 52-week high of Rs 48.3 on 4 August 2023 while it touched a 52-week low of Rs 20.6 on 1 August 2022.

About IRFC

Indian Railway Finance Corp Ltd is engaged in the business of borrowing funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways or any entity under the Ministry of Railways.

Its only operating segment being leasing and finance. The company generates maximum revenue from lease income.

Its sole objective is to raise money from the debt capital markets to part-finance the plan outlay of Indian Railways.

The money so made available is used predominantly for acquisition of new rolling stock assets to be leased to Indian Railways or developing railway infrastructure.

For more details, see the IRFC company fact sheet and quarterly results.

For a sector overview, read our finance sector report.

You can also compare IRFC with its peers:

IRFC vs REC

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